A global could be a possible ultimate result of there is an outbreak of military conflict on the Korean Peninsula and that would be destabilizing for the region, according to Citi’s top global political analyst.
Tina Fordham, managing director and chief global analyst at Citi said that the extent of the damage from such a scenario can be gathered from war games that have been carried out through history which have simulated what could happen as a result even though it was impossible to put a number on the scale of the North Korea risk.
“A conflict on the Korean Peninsula would not only be very disruptive in the region, but could potentially lead to World War III because of the U.S. security guarantee, so it would be internationalized overnight,” Fordham said during a television interview on the sidelines of the Milken Institute Asia Summit in Singapore.
The already fraught U.S.-North Korea relations have been further worsened after North Korea carried out its sixth and most powerful nuclear test on September 3. Targeting the hermit state a limit on oil import is part of the strong sanctions that the United Nations Security Council has already imposed and in response to the latest missile test, it voted to further intensify the sanctions.
Fordham said that even while North Korea remained an immense risk, the duration and scope of such a conflict would be difficult to measure.
“It is the single biggest geopolitical threat and one that would also move markets … When we look at political risk, we look at whether it’s likely to cause an oil price shock or a growth shock. And in the North Korea case, if the worst were to happen, it would be both,” she added.
Given the volatility of variables in the mix, she was loathe to assign probabilities to further developments on the peninsula for now, Fordham said. Predicting what North Korean leader Kim Jong Un and President Donald Trump would do is a difficult task, she pointed out.
She added: “Not only is the North Korean leader ramping up the tests, with six this year, but Donald Trump is also changing U.S. foreign and security policy in a way we haven’t seen before.”
“That mix of unpredictability in the key leaders just adds to the mix of the potential for misunderstanding and accidents, at a minimum, and possibly something worse.”
Still, she cautioned against viewing the outcome as a binary.
“Investors tend to see it as either there will or won’t be conflict,” Fordham said, noting that there could be important developments in between extremes.
(Adapted from CNBC)